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The effects of the European debt crisis on earnings quality

Author

Listed:
  • Kousenidis, Dimitrios V.
  • Ladas, Anestis C.
  • Negakis, Christos I.

Abstract

The present study examines whether and to what extent the recent crisis in the European Union (EU) had an impact on the quality of the reported earnings of listed firms in countries with weak fiscal sustainability (Spain, Greece, Ireland, Italy, and Portugal)—countries that have been forced to apply harsh austerity measures and are practically under financial supervision by EU authorities. This study also examines whether incentives for earnings management, probably induced by the crisis, have led to differential effects in earnings quality. The earnings quality attributes examined include value relevance, timeliness, conditional conservatism, smoothing, management, persistence, and predictability. The reported results show that during the crisis, the change in most determinants of earnings quality favors higher earnings quality. However, the results also suggest that in the case of firms that exhibit the biggest discretionary accruals over a single period, most of the earnings quality attributes signal a decrease in earnings quality. These results persist, even when using controls for extremely poor performance. Therefore, the results of this study indicate that, on average, earnings quality has improved in the crisis period; however, in the presence of incentives for earnings management, earnings quality deteriorates.

Suggested Citation

  • Kousenidis, Dimitrios V. & Ladas, Anestis C. & Negakis, Christos I., 2013. "The effects of the European debt crisis on earnings quality," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 351-362.
  • Handle: RePEc:eee:finana:v:30:y:2013:i:c:p:351-362
    DOI: 10.1016/j.irfa.2013.03.004
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Joliet, Robert & Muller, Aline, 2016. "Are foreign earnings disclosures value-relevant?," Research in International Business and Finance, Elsevier, vol. 37(C), pages 170-183.
    2. Persakis, Anthony & Iatridis, George Emmanuel, 2015. "Earnings quality under financial crisis: A global empirical investigation," Journal of Multinational Financial Management, Elsevier, vol. 30(C), pages 1-35.
    3. repec:eee:joecas:v:11:y:2014:i:c:p:138-145 is not listed on IDEAS
    4. Luísa Andreia Serra Costa & António de Melo da Costa Cerqueira & Elísio Fernando Moreira Brandão, 2016. "The impact of financial crisis on earnings management: evidence from EU-25," FEP Working Papers 578, Universidade do Porto, Faculdade de Economia do Porto.
    5. repec:eee:jiaata:v:29:y:2017:i:c:p:52-65 is not listed on IDEAS
    6. Sabur Mollah & Omar Al Farooque & Asma Mobarek & Philip Molyneux, 2018. "Bank Corporate Governance and Future Earnings Predictability," Working Papers 2018-09, Swansea University, School of Management.
    7. repec:eee:joecas:v:11:y:2014:i:c:p:96-103 is not listed on IDEAS
    8. Eliwa, Yasser & Haslam, Jim & Abraham, Santhosh, 2016. "The association between earnings quality and the cost of equity capital: Evidence from the UK," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 125-139.

    More about this item

    Keywords

    Earnings quality; European crisis; Incentives for earnings management; IFRS;

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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